In 1886, Tesla formed his own company, Tesla Electric Light & Manufacturing. The initial financial investors disagreed with Tesla on his plan for an alternating current motor and eventually relieved him of his duties at the company. Tesla worked in New York as a laborer from 1886 to 1887 to feed himself and raise capital for his next project. In 1887, he constructed the initial brushless alternating current induction motor, which he demonstrated to the American Institute of Electrical Engineers (now IEEE) in 1888. In the same year, he developed the principles of his Tesla coil, and began working with George Westinghouse at Westinghouse Electric & Manufacturing Company's Pittsburgh labs. Westinghouse listened to his ideas for polyphase systems which would allow transmission of alternating current electricity over long distances.

In April 1887, Tesla began investigating what would later be called X-rays using his own single terminal vacuum tubes (similar to his patent #514,170). This device differed from other early X-ray tubes in that it had no target electrode. The modern term for the phenomenon produced by this device is bremsstrahlung (or braking radiation). We now know that this device operated by emitting electrons from the single electrode through a combination of field electron emission and thermionic emission. Once liberated, electrons are strongly repelled by the high electric field near the electrode during negative voltage peaks from the oscillating HV output of the Tesla Coil, generating X rays as they collide with the glass envelope. He also used Geissler tubes. By 1892, Tesla became aware of the skin damage that Wilhelm Röntgen later identified as an effect of X rays.

In the early research, Tesla devised several experimental setups to produce X-rays. Tesla held that, with his circuits, the "instrument will [... enable one to] generate Roentgen rays of much greater power than obtainable with ordinary apparatus".[46]

He also commented on the hazards of working with his circuit and single-node X-ray-producing devices. Of his many notes in the early investigation of this phenomenon, he attributed the skin damage to various causes. He believed early on that damage to the skin was not caused by the Roentgen rays, but the ozone generated in contact with the skin, and to a lesser extent, nitrous acid. Tesla incorrectly held that x-rays were longitudinal waves, such as those produced in waves in plasma. There are known examples of this and these plasma waves can occur in the situation of force-free magnetic fields.[47][48] His hypotheses and experiments were confirmed by others.[49]

Tesla continued research in the field. He performed several experiments prior to Roentgen's discovery (including photographing the bones of his hand; later, he sent these images to Roentgen) but did not make his findings widely known; much of his research was lost in the 5th Avenue laboratory fire of March 1895.

The Tesla generator was developed by Tesla in 1895, in conjunction with his developments concerning the liquefaction of air. Tesla knew, from Lord Kelvin's discoveries, that more heat is absorbed by liquefied air when it is re-gasified and used to drive something, than is required by theory; in other words, that the liquefaction process is somewhat anomalous or 'over unity'[50]. Just prior to Tesla's completion of his work and the filing of a patent application, Tesla's laboratory burned down, destroying all his equipment, models and inventions. Immediately after the fire, Linde, in Germany, filed a patent application for the same process.[51]

A "world system" for "the transmission of electrical energy without wires" that depends upon the electrical conductivity of the earth was proposed, in which transmission in various natural media with current that passes between the two points are used to power devices. In a practical wireless energy transmission system using this principle, a high-power ultraviolet beam might be used to form a vertical ionized channel in the air directly above the transmitter-receiver stations. The same concept is used in virtual lightning rods, the electrolaserelectroshock weapon,[52] and has been proposed for disabling vehicles.[53][54]

Tesla demonstrated "the transmission of electrical energy without wires" as early as 1891. The Tesla effect (named in honor of Tesla) is a term for an application of this type of electrical conduction (that is, the movement of energy through space and matter, not just the production of voltage across a conductor).[21]:174[55]